RESIDENTIAL VS COMMERCIAL INVESTMENT – WHICH ONE IS BETTER FOR YOU?

There are various factors that can affect the worth of your property, such as its location, the nearby facilities, condition of the property, and so on. While there are countless residential properties available in various sizes, their cost can differ from project to project and area to area.

Commercial properties, on the other hand, are affected by a different set of factors. An easily accessible office and a shop located at the road front are just two of the many examples. However, commercial properties are relatively more expensive and come with restrictions on sizes of shops and plots.

LAWS AND REGULATIONS

Residential property owners not only get more freedom in terms of structure and design but also in terms of rental agreements and construction bylaws. It’s also relatively easier to build a house with fewer planning and zoning permissions needed. On the contrary, if you opt for buying a commercial property, the laws & regulations get stricter. In this case, you will have to cross multiple hurdles to get permissions to design and build as per your liking.

STABILITY

When you’re deciding between residential vs. commercial property investment, you also need to think about which option is better for you in case of an economic crisis. The demand for houses falters rarely as almost everyone needs a roof to live under, with whatever rent they’re able to afford.

On the other hand, when the economy goes into recession, many stores, organizations and companies consider re-evaluating their premises, overheads, and expenses. So if you have any deal underway the economy goes into recession, you might get yourself into trouble. In comparison, residential property investment remains stable.

DEMAND

Let’s now discuss the pool of investors or renters that you have at your disposal. The demand for residential properties never really ends, so there will always be a large pool of purchasers or renters willing to buy or rent your house. But on the other hand, commercial properties are only in demand by retailers, organisations, and firms, all of whom will not be searching for a new property if they already have a well-working setup.

However, there is an advantage in buying a commercial property. If you decide to rent it out, you can try finding reliable renters with long-term leases, and a reduced renter turnover. This is because offices don’t usually change their location every six months or every year. Residential tenants, however, might leave your property suddenly, leaving you with a vacant space to fill on an urgent basis.

RETURN ON INVESTMENT

This is where commercial property investments take the lead. You will generally earn a lot more by renting out or reselling a commercial as compared to a residential unit. Commercial real estate returns are considerably higher than residential real estate returns. While commercial property investment has greater risks, it has greater returns as well. This is mainly because it’s easier to increase commercial real estate’s value over time. If you own a shop that generates good revenue, reselling it at a higher price is going to be easier for you than adding another room to a residential unit to sell it at an increased price.

PROPERTY MAINTENANCE

When it comes to real estate investment maintenance, residential units are relatively lighter on the pocket. It is mainly because your tax bracket changes when you declare yourself a commercial property owner. Thus, you won’t be only paying higher taxes, but also higher utility bills as per the norms of commercial units because their overheads are usually costlier.

However, it has a positive side as well. As an owner of a residential property in Pakistan, you may have to pay for all the repairs and maintenance yourself. Whereas, in case of owning a commercial unit, you can draft a contract while renting your property that puts the responsibility of maintenance on the renter who is using that space for his business.

Leave a Reply